Kaiser Permanente is gambling $2 billion on technology

DENVER -- Kaiser Permanente, the nation's second-largest health plan, lost hundreds of millions of dollars after its East Coast expansion plans ended in failure in the 1990s.

PHIL GALEWITZ

Published 12:00 am, Monday, September 18, 2000

Now it's taking a risk on an even loftier goal: Operating in cyberspace.

Kaiser is spending about $2 billion over the next five years to become the most wired health plan in the country, a move it hopes will improve care and reduce medical and administrative expenses.

It's a bold step for the non-profit health maintenance organization.

Kaiser has been preparing and gradually implementing its electronic medical records system since the mid-1990s, and it's already in place in the company's 16 Denver-area health facilities. Its biggest test lies ahead: In the next 18 months, it will begin implementing the system in California, home to 6 million of Kaiser's 8 million members, and to Hawaii.

"This is a major bet that is intended to substantially increase our lead in being able to organize and deliver superior care," said David Lawrence, Kaiser's president and chief executive officer. "It's a huge financial bet."

The electronic system will allow Kaiser's patient care operations to go virtually paperless -- a daunting task, considering Kaiser has 35 hospitals, 423 outpatient clinics and 11,345 doctors. The most visible part of the plan will be a computer in every Kaiser clinic exam room.

In many ways, the electronic records system fits in with Kaiser's team-based approach to health care, said Peter Boland, a Berkeley, Calif.-based managed care consultant. That's because one of its biggest advantages is giving health providers simultaneous and immediate access to patient records.

While most large health plans have increased spending on information technology in recent years, none come anywhere close to Kaiser's undertaking, health information experts say.

Kaiser already differs from most East Coast and Midwest health insurance plans because it owns the hospitals and outpatient health centers where its members go for treatment. And doctors who join the plan are on salary and treat only Kaiser patients.

The company hopes its electronic medical records system will give it an edge in attracting new members. Still, in an era when most employers and customers buy only on price -- not on other benefits such as potential to improve care -- the strategy remains untested.

Having divested money-losing operations in the Northeast and North Carolina last year, Kaiser is still in the midst of a huge financial turnaround. The Oakland, Calif.-based HMO had a net loss of $6 million in 1999 on revenues of $16.8 billion, after posting losses of $288 million in 1998 and $266 million in 1997.